Prudent Corporate Advisory Services Limited
Issue Open
Price Band
Issue Size
Credit of Shares to Demat
Issue Close
Bid Lot
Listing Exchange
Cut off time for UPI Mandate Confirmation
Issue Type
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Allotment Details
Face Value
Listing On
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Issue details
IPO Opening Date |
May 10, 2022 |
IPO Closing Date |
May 12, 2022 |
Issue Size |
538.6 crores |
Issue Type |
Book Built Issue IPO |
Price Band |
INR 595 – 630 |
No. of shares |
~85.9 lakhs |
Market Lot |
23 shares |
Objects of the issue
To achieve the benefits
of listing the Equity Shares on the Stock Exchanges and carrying out the Offer
for Sale.
Shareholding Pattern |
Pre-Issue |
Post-Issue |
Promoter |
43.46% |
43.46% |
Promoter Group |
13.43% |
13.43% |
Public -Selling S/h |
43.15% |
22.50% |
Public - Others |
0.07% |
20.72% |
Total |
100% |
100% |
About the
company:
Incorporated in 2002, Prudent
Corporate Advisory Services Limited is an independent retail wealth
management services group in India. The company’s business primarily consists
of the distribution of mutual funds. It also distributes other financial
products such as insurance, portfolio management schemes (PMS), alternative
investment funds (AIF), corporate fixed deposits (FDs), bonds, unlisted
equities, stockbroking solutions, loans against securities, national pension
scheme (NPS), structured products, etc. The company earns commission from third
parties for the distribution of its products. As of December 31, 2021, their
assets under management from the mutual fund distribution business (“AUM”)
stood at INR 48,411 crore with 92.14% of their total AUM being equity-oriented.
As on December 31, 2021, they
provided wealth management services to 1,351,274 unique retail investors
through 23,262 MFDs on their business-to business-to-consumer (“B2B2C”)
platform and are spread across 110 locations in 20 States. Also, the number of
AMFI Registration Number (“ARN”) holders empanelled with them stood at 23,262,
representing 18.46% of the industry.
Key Strengths:
Operates in an underpenetrated
Indian asset management industry that has grown at a CAGR of more than 20%
Mutual fund assets in India have
seen robust growth, especially in recent years. Retail mutual funds category
posted the highest CAGR (22% over the 5 year period from March 2016 to March
2021) among other retail financial products categories and touched
approximately INR 17 trillion as of March 2021. However, penetration levels
remained well below those in other developed and fast-growing peers, with a
world average of 75%. The ratio of the equity mutual fund AUM-to-GDP in India
at 6% is considerably low compared to 89% in the US, 78% in Canada, 50% in the
UK, and 30% in Brazil.
Granular Retail AUM with a MIX
skewed towards equity AUM
The number of live SIPs on their
platform is 1.53 million as of December 31, 2021, with the corresponding equity
AUM from SIPs standing at INR 18,950 crore (representing 42.48% of the total
equity-oriented mutual fund AUM, whereas the industry average is close to 30%)
as of December 31, 2021. Further, 44.09% of their SIPs are perpetual, that is
till 2099 or until canceled and the rest have an average maturity of 17 years,
demonstrating the relative stickiness of investment inflows through this route.
High Commission to AAUM compared
to its peers
Equity as an asset class has a higher
expense ratio and consequently higher earnings for distributors. The company’s
commission to AAUM ratio for FY21 stood at 1.06%, while the industry average in
the same period was 0.65%. This is primarily due to equity AUM forming a major
portion of the mutual fund distribution business AUM. Among national
distributors, the company’s market share on a commission received basis has
increased from ~4% in FY15 to ~12% in FY21.
The value proposition has led
to increased participation and a long-standing relationship with MFDs
Company’s offerings for MFDs
include various technology platforms for them as well as for their retail
investors, with continuous support through their 59-member in-house technology
and 55 members back-office service team. Their MFDs as well the clients are
habituated with the various offerings of their platform. Thus, they have been successful
in growing their MFD network from 8,378 as on March 31, 2018 to 23,262 as on
December 31, 2021 at a CAGR of 31.24%. The Company continues to enjoy
long-standing relationships with its MFDs, with more than 50.6% of the
company’s AUM as of 31st December 2021, being contributed by MFDs who are
associated with the company for more than five years.
Key Risks:
High Dependence on Asset
Management companies (AMCs)
The mutual fund distribution
business constitutes a significant part of the company’s revenue. For 9M FY22
and FY21, company’s total commission and fee income from distribution of mutual
fund products contributed 84.49% and 80.73% of its total revenue from
operations. Any change which adversely affects the business of AMCs, will
indirectly impact the company’s operations as well.
People choosing to invest in
funds directly
Existing as well as potential
clients may not see merit in choosing to make their mutual fund investments
through distributors, and may choose to invest in such funds directly. In the
event that such existing or potential clients choose to invest in such funds
directly, company’s AUM or growth in AUM may reduce, which would have an
adverse impact on its business.
Regulatory changes surrounding
expense ratio
Regulatory changes that require
the AMCs to reduce their expense ratios, could also adversely impact the
company's business. If the AMCs reduce the total expense ratio due to
regulatory changes, they may reduce the distribution commission, which would
adversely impact the company’s revenues.
Highly competitive industry
Company could lose market share
if its unable to thwart the increasing competition. Company faces competition
from various companies in the financial services industry, including other MFDs
and wealth management companies, who cater to the need of MFDs. Company also
faces competition from the wealth management arms of several market
participants, including established Indian & foreign banks and private
banks.
Financial
Summary:
Particulars |
2019 |
2020 |
2021 |
9MFY22 |
Commission and Fees and Income. |
215.1 |
229.3 |
277.6 |
314.1 |
Total Revenue from operations |
222 |
234.8 |
286.5 |
321.3 |
Net Profit |
21.1 |
27.8 |
45.3 |
57.7 |
Net cash generated in operating activity |
12.3 |
50.3 |
57.7 |
50.6 |
Key Metrics
Particulars |
5-year CAGR Ending FY21 |
AAUM |
32.5% |
Commission |
34.4% |
Commission as a % of AAUM |
1.2% |
The company’s Average Assets
Under Management (AAUM) has grown at a CAGR of 32.5% to INR 24,910 crore in the
five-year period ending FY21 while in the same period, mutual funds
distributors’ AAUM grew at an approximate CAGR of ~12% and touched INR 10.2
trillion in FY21. Thus, indicating that the company has gained market share.
The revenue from operations of the company grew at a three-year CAGR of 8.9%, whereas
its total Income grew at a three-year CAGR of 9.4%. The net profit of the
company saw a healthy three-year CAGR of 29%. The company’s commission as a %
of AAUM stands at 1.2% which is best in class thanks to its higher proportion of
equity AUM to its total AUM.
Samco’s Stance:
The Mutual Fund Industry in India
has grown at a healthy pace of 18% CAGR during FY 15-21. Owning to the low penetration
which stands at 15% which is far below the world average of 75%, the growing financial
literacy, and increase in financial savings the industry has sufficient tailwinds
to grow. But the industry in which the company operates has a low barrier to
entry and thus is crowded with competition. Moreover, the company will face
difficulties in tackling the bigger players in the industry such as established
brands and private banks. The company is already operating on a lower operating
and profit margins than its peers and the recent downgrade in its ratings by
Moody’s would further affect its borrowing costs. The company’s valuation stands
at 57.6x its earnings which makes it far more expensive than its peers.
Considering the current sour market conditions and the low margin of safety
being provided by this stock, we have an AVOID rating for this IPO.